Services sector slows down as year ends

The Australian Industry Group Australian Performance of Services Index (Australian PSI®) fell 3.0 points to 52.1 in December 2018, with consumer-oriented sectors leading growth as business-oriented sectors were largely contractionary. This represented a 22nd straight month of positive conditions, despite growth trending down in the second half of 2018 (results above 50 points indicate expansion, with the distance from 50 points indicating the strength of the increase).

Ai Group Chief Executive, Innes Willox, said: “While still growing, the services sector slowed at the end of 2018 as contractions in business-orientated sub-sectors weighed against the more buoyant consumer-facing sub-sectors. Strength in hospitality services, recreation & other services and health & education helped overall growth in the services sector despite lower levels of activity in transport & storage and wholesale services and broadly stable conditions in the finance & insurance and business & property services sub-sectors. The outlook for the next couple of months is similarly mixed with new orders strong in December 2018 but employment levels down sharply at year’s end,” Mr Willox said.

Australian PSI® – Key Findings for December 2018:

The Australian PSI® has indicated positive conditions (results above 50 points) for 22 months, and stable or expansionary results for 27 months.

Four of the five activity indexes in the Australian PSI® expanded in December 2018, with employment falling into contraction for the first time since September 2016 (down 7.4 points to 45.5). Growth in sales (down 1.4 points to 53.1), deliveries (down 5.9 points to 51.9) and stocks (down 2.7 points to 51.4) moderated, while new orders accelerated (up 1.2 points to 58.0).

The consumer-oriented services sectors were all positive in December 2018, with hospitality (down 0.1 points to 59.6) and health, education & community services (down 0.9 points to 55.8) reporting robust expansion over the month.

The input prices index rose 7.4 points to 66.8, with all sectors reporting increasing costs particularly for energy and imported inputs. The average wages index also increased (up 2.3 points to 62.6), indicating accelerating wage pressures across the services sectors.

The selling prices index improved by 3.1 points to 50.9, although the ability to respond to rising costs with increased prices in December 2018 was mixed across the sectors, with just over half of the sectors able to do so.

Background: The Ai Group Australian PSI® is a leading indicator of services activity in the Australian economy. It is a seasonally adjusted national composite index based on the diffusion indices for sales, orders/new business, deliveries, inventories and employment with varying weights. An Australian PSI® reading above 50 points indicates that services activity is generally expanding; below 50, that it is declining. The distance from 50 is indicative of the strength of the expansion or decline. Results are based on a sample of around 200 companies each month.